Category: Investing Basics

Wondering what are Unlisted Shares and how to invest in them? Welcome to the club.

If you have landed on this page, that means you are interested in exploring pre-IPO shares. 

Unlisted financial securities can be beneficial for your portfolio if you know where to invest. See our top picks of unlisted shares.

But before that, it’s important to understand everything about unlisted shares.

Shall we?

What Are Unlisted Shares?

As the name suggests, these shares are not listed on the official stock exchange. Yet.

These are privately held shares that may get listed in the future through the IPO process. You can only invest in them via Over The Counter (OTC) market.

What does OTC even mean? It means buying shares over the counter just like you buy a movie ticket. Well, not literally, but similar. 

After buying, you receive these shares in your Demat account similar to any other shares. The prices of these shares will go up in a long run. Or whenever the company goes through the IPO process, you have a great opportunity to bag listing gains.

Benefits Of Investing In Unlisted Shares

1. Chance of Earning Superior Returns Via Listing Gains

As unlisted shares are not traded on the stock market, the liquidity is not as flexible. But, it can be used to your benefit. 

Most unlisted shares do not fluctuate in price as often as listed shares. They are either undervalued or overvalued and stay the same for a long time.

If you invest in them when they are undervalued, you can earn exponential returns.

There’s also a chance of earning listing gains whenever the company goes on IPO. 

Here’s a successful performance of some of the recent listings of unlisted shares-

Stock	Initial Investment Price	Listing Date	IPO Listing Price	Return Multiple
TATA Technologies	230	30 Nov 2023	500	2.17
Nazara Technologies	430	19 March 2022	1101	2.56
Anand Rathi Wealth	160	6 Dec 2021	550	3.44
One97 Communications	1400	11 Nov 2021	2150	1.54
Barbeque Nation	228	26 March 2021	500	2.19

Note- Not all unlisted shares can offer exponential growth or higher listing gains. 

2. Lower Volatility

Unlisted shares are a great way to balance your risk profile and diversify your portfolio. These shares are not as volatile as equity shares.

If you have invested in high or moderate-risk stocks, unlisted shares can balance the risk.

You don’t have to pay constant attention to the changing prices. That takes away all the worry about buying and selling these shares as the market changes.

3. Allocation Confirmation

One of the major benefits of investing in pre-IPO is allocation confirmation. Promising IPOs often get oversubscribed during the IPO. There’s a solid chance that you may not get any shares allotted to you. 

Furthermore, when you invest pre-IPO, you already hold shares before the company goes live on the share market. This gives you an upper hand during IPO, which brings us to the next point.

4. Pre-Listing Gains

The valuation of private companies grows exponentially before the IPO. There’s often a high demand for these shares just before the IPO. Since the supply is limited, the prices aka the premium for these shares shoot up. 

For example, if the issue price for a share is 20Rs and the over-the-counter premium (price) is 40Rs, then people are ready to pay 60rs to get these shares before IPO.

Investors who already own the shares of these companies may earn a huge profit via pre-listing gains. 

Tax Implications

Taxation Before The Listing-

The income earned (Capital Gains) after selling the Shares is taxed as per the duration.

1. Long-Term Capital Gains- If you sell the investment after 24 months (long-term), you will have to pay 20% tax on capital gains after indexation. For NRIs, the tax will be 10% without indexation.
2. Short-Term Capital Gains- If you sell the shares before 24 months of investments, the tax will be calculated as per your income tax slab.

Taxation After The Listing-

If the unlisted shares get listed on the market, the taxation will be similar to any other listed stock. 

1. You will have to pay a 10% tax on long-term capital gains (investments held for more than a year) above 1 lakh. 
2. If you sell your shares before 12 months, then the tax on short-term capital gains will be 15%.

What Are The Risks of Investing in Unlisted Shares?

1. Lack of regulations

Unlisted shares do not have SEBI or Stock exchange regulations on them. In order to have a secure buy/sell, you will need a trustworthy wealth manager to work with.

2. Lack of Liquidity

Unlisted shares may not offer higher liquidity as the buyers and sellers are fewer on the OTC market. You may have to wait until you find a buyer who is willing to purchase your shares at a suitable price.

For ease of selling/buying unlisted shares, contact VNN Wealth. 

3. Lack of Certainty

You might always face a lack of certainty in terms of valuation, company performance, and the possibility of earning listing gains. The only way to avoid uncertainty is by investing in known brands that are likely to get listed. 

We have already hand-picked selective companies from the unlisted universe. You can get in touch with us to invest in your choice of unlisted shares.

How to Invest in Unlisted Shares?

The pre-IPO investment process is slightly different. You won’t find them on the stock exchange. 

Here’s how you can buy unlisted shares with us-

1: Explore from the list of companies to invest in

2: Click on Invest Now on the shortlisted company

3: Enter Your Investment Amount

4: Fill in your details

5: Upload PAN copy & CML/CMR copy of your Demat account

Once you submit the details, our team will share account details for you to transfer the trade amount. 

The shares will reflect in your Demat account within 24 hours.

Conclusion

Unlisted Shares can boost your investment portfolio if you invest in the right company. There is a possibility of earning listing gains, which will generate that extra alpha in your portfolio.

But the key factor to earning superior returns from these shares is to choose the right company(s). 

You have the option of investing in many startups to known brands. But not all are going to give you listing gains. 

We have already selected the top 5 unlisted shares for you. If you are interested in buying unlisted/Pre-IPO shares, get in touch with us today. Our advisors have been helping clients invest in unlisted companies for the past decade. Join them as you achieve your envisioned financial goals.

You must have heard the concepts of the Power of Compounding Interest in your mathematics textbook. Something that seemed boring in childhood can turn out to be pretty amazing in your adulthood. Yes! Compounding can build your wealth exponentially. And it’s even better if you start investing early.

In your 20s, the term ‘Savings’ may not be your first priority. Understandable! You would want to enjoy your own money. But, that’s exactly the right time to start building wealth for the future. The earlier you start, the better outcome you’ll see. And you will be amazed to know what compounding can do with your money.

Interested enough? Let’s find out more about it.

What Is the Power Of Compounding Interest?

Let’s not get into the whole boring definition that you probably hated in school.

In simple words- The power of compounding is earning interest on both the principal amount plus the previously earned returns. 

The interest that you earn on the principal amount gets reinvested every year. It allows you to earn interest on both the principal amount and the reinvested interest.

Whereas, if you opt for simple interest, you will only earn interest on the principal amount. 

Power Of Compounding Interest: How Does It Work?

Let’s say you’ve invested INR. 10,00,000 in a scheme with a 12% annual interest rate. You will receive 12% profit on your principal amount every year.

Here’s the comparison of simple interest vs compound interest.

Years	Simple Interest Earned	Total value	Compound Interest Earned	Total Value
5	6,00,000	16,00,000	8,21,939	18,21,939
10	12,00,000	22,00,000	23,19,462	33,19,462
15	18,00,000	28,00,000	50,47,858	60,47,858
20	24,00,000	34,00,000	1,00,18,829	1,10,18,829
25	30,00,000	40,00,000	1,90,75,636	2,00,75,636

See the difference in returns between simple and compound interest. 

In 25 years, your 10 lakhs @12% p.a. will become 40 lakhs with simple interest and 2 crores with compound interest. That’s the power of compounding.

Note- Instead of a lumpsum investment, you can also consider starting a SIP of a mutual fund scheme to benefit from the rupee cost averaging and power of compounding.

Now let’s say, Abhishek, Ananya, and Simran are three friends who started a SIP of INR 10000 with 12% compounding interest till age 60. But, Abhishek started at age 25, Ananya at 30, and Simran at 35. 

By the time Abhishek, Ananya, Simran are 60. Abhishek built more wealth than Ananya and Simran.

Now, as you can see in the above table, Abhishek invested an additional 12 Lakhs compared to Simran, who began investing early. By the time both reached the age of 60, Abhishek accumulated a total corpus of 5.09 Crores, which is MASSIVE 3.59 crores more than Simran.

Tip- You can build a large corpus from early investments and convert your lakhs into crores.

Why Start Saving Early?

Often, newly employed people have the urge to spend money on things they always wanted to own. Investment isn’t on their mind.

However, you will probably have less responsibility and more time to start saving and investing. It’s the right time to build wealth for the future.

Market volatility and global economic changes are uncertain. It’s always better to have your financial goals aligned. Besides, when you are young, you can explore various investment instruments, take more risks, and build a diverse portfolio.

From the above table, you already know the benefit of investing early. That’s the best way to ensure a comfortable life for you and your loved ones.

How to Start Saving Early?

Now that you know how early savings can grow your wealth exponentially, here are some tips that you can try.

1. Plan Your Expenses

It’s natural to have a spending habit in your 20s. After all, you are enjoying your youth. But, these are the years that can make your 30s, 40s, and retirement comfortable.

To have a balance between expenses and savings, note down your budget. It will help you identify certain expenses that can be cut down. As your mom would say- No need to order food online when we have plenty at home.

Also, you will come across some heavy expenses such as weddings, healthcare, child education, house, or car purchase anytime in the future. 

These expenses can be done smoothly with thorough expense planning. Have a clear idea of what you want to financially achieve in the next 10 years. Cut down unnecessary expenses and invest them into mutual funds via SIP. 

Read about the benefits of investing via SIP. 

2. Maintain Discipline 

Discipline plays a very crucial role in investments. You have to be consistent to get desired outcomes. Plan your investments and execute them on time. 

Nowadays, net banking offers an auto-debit feature to ensure you don’t forget an installment. Or simply use app reminders to have a consistent investment plan. 

3. Keep Track of Your Savings

When you have a complex investment portfolio, it could get tricky to keep a track of everything. You can either note down all your finances in a secure folder or seek help from a financial expert who can do it for you.

With VNN Wealth, you can get your portfolio analyzed periodically and take an expert’s advice to manage your finances. 

4. Plan Retirement Horizon

With the right investments, you can plan an early retirement and still have a comfortable life.

The earlier you start saving, the earlier you will have an envisioned wealth. Determining your investment horizon will help you figure out the necessary financial goals. Be it your retirement home or a long-due vacation, you will be able to do it all comfortably. 

5. Be Patient

Patience is the key while building wealth. Most investors seek quick returns, which is not always possible. Remember, the power of compounding works better if you hold your investment for a longer time.

Conclusion

The main highlight of compounding is- your money makes more money. You earn interest on interest. And you use time as a variable to convert your lakhs into crores.

The earlier you invest, the larger the corpus you will build over the years. We would recommend starting a mutual fund SIP to benefit from compounding. It’s never too late to start building wealth. 

The power of compounding works in the background as you continue to invest money. All you need is patience and of course, the right investment instruments. 

Start planning your expenses and set financial goals for the future. If you need help crafting a sustainable investment portfolio, we are here for you.

 

Give VNN Wealth experts a call or send an email to discuss all the possible ways you can build wealth. Start early and save big!

Does an Inverted Yield Curve indicate a recession? 

Let’s find out. 

As of Nov’22, the yield curve for 3-month and 10-year US treasury has officially inverted. They are expecting to see the recession by Oct’23. In India, the yield curve seems to have flattened, which could go either way.

Usually, long-term bonds offer a superior yield than short-term bonds, making a yield curve an upward slope. But if not, the curve inverts and may indicate the possibility of an economic downgrading. 

An inverted yield curve was almost always followed by a recession. Though investors must only treat the yield curve as an indication as the economic scenario may flip. You never know.

Read on to find out more about the Inverted Yield Curve.

 

What is an Inverted Yield Curve?

• A yield curve is a graphical representation of the yield earned from bonds of different maturity periods.
• Each bond has a fixed coupon rate and a varying yield. The coupon rate gets declared against the face value (the initial NAV) of the bond. It remains the same even if the bond price changes.
• Yield is collective earnings from the various bonds + the coupon rate + the principal amount. Bonds are also traded in the market similar to stocks. Their price goes up and down depending on the demand.
• When the demand for a bond goes up -> The price goes up -> And the yield goes down.
• As mentioned above, long-term bonds offer a higher yield than short-term bonds. The yield curve slopes upwards indicating a positive economy.
• But, when the demand for long-term bonds increases, decreasing the yield, the curve inverts.
• Consider, for instance, there are two bonds with similar ratings but different maturity periods. Bond-A is a short-term bond with 3 month maturity period. Bond-B is a long-term bond with 10 years maturity period.
• If Bond-A offers a 6.78% yield and Bond-B offers a 6.01% yield, then the yield curve would invert. 

 

What Are The Different Types of Yield Curves?

1. Normal Yield Curve

As long-term bonds tend to be riskier, investors demand higher yields to compensate for the risk.

In such a case, long-term yields are higher than short-term yields.

2. Inverted Yield Curve

The yield curve becomes negative/inverted when the short-term yield surpasses the long-term yield. This also indicates increased demand for long-term bonds.

3. Flat Yield Curve

A flat yield curve indicates that both long and short-term bonds are performing the same. It could be the foreshadowing of a weak economy. A flat curve could be a transition phase between the normal and the inverted yield curve.

4. Steep Yield Curve

The yield curve goes steep when long-term bonds are offering far higher yields than short-term bonds. This indicates the growing economy.

 

Does an Inverted Yield Curve Always Means an Incoming Recession?

The Yield Curve was able to forecast recession many times in the past. In fact, in the past 50 years, an economic slowdown or a downgrade was seen with the inverted yield curve.

However, it is essential to understand that the yield curve is only an indicator. 

Let’s put it simply.

Economic ups and downs could happen due to many reasons. Inflation, sudden geographical tension, a wave of life-threatening viruses, or anything. While some changes are sudden, some can be analyzed by observing economical patterns.

Having said that, the yield curve will invert if the investors are expecting a possible downfall in the economy. With a fall in inflation, investors will analyze and predict a potential fall in the yield as well.

If the yield for the long-term bond keeps falling further, it could lead to a recession. 

However, an inverted yield curve isn’t the official parameter to predict a recession. It is merely an indicator.

 

What Should Investors Do When The Yield Curve Inverts?

Many investors closely follow the yield curve to align their investments accordingly. Prices of the bonds may fluctuate as the supply/demand dynamic changes.

Here are a few tips for investors-

1. Stay Calm

With the fear of recession around the corner, many investors start to panic. Some may end up selling without considering the possible risk/loss.

In a situation like this, you must stay calm.

The yield curve doesn’t stay inverted forever. The economy eventually catches up. Most importantly, whenever the yield curve inverts, the recession is not an immediate next step.

Investors get enough time to align their investments, which brings us to our next point. 

2. Align Your Investment

It is always advisable to have a diverse portfolio to minimize the risk. You can check where your portfolio stands with our complimentary portfolio analysis tool.

An inverted Yield Curve is one of the situations where outcomes could go either way. To prepare yourself, you may want to align and readjust your investments. 

You can explore other investment avenues that can balance out the risk and returns.

3. Periodic Re-Evaluation Of Asset Allocation

We would recommend re-evaluating your investment portfolio at regular intervals. It gives you an idea of where your profile stands in a changing economy.

There are many investment opportunities that can help you sustain your financial goals.

 

Conclusion

Many investors closely watch the yield curve to adjust their investments amid the possibility of a recession.

However, if the yield curve doesn’t stay inverted for a prolonged time, the economy may not lead to a recession.

Frequently changing yield curves may shed light on a weak economy, but not necessarily a recession. 

We would recommend following the above tips to stay calm and focus on your investment goals. Take actions that will suit your profile.

 You may also like to read- different types of mutual funds.

Balanced Advantage Funds (BAF) follow a hybrid/dynamic asset allocation model between equity and debt with no threshold on asset allocation. Fund managers shift your portfolio between equity and debt based on market conditions. This dynamic asset allocation method offers both growth and stability, especially during market ups and downs.

BAFs are one of the best mutual fund schemes to stabilize returns during market volatility. It’s safe to say that BAFs can balance your investment portfolio and here’s everything you need to know about these schemes:

How Do Balanced Advantage Funds Asset Allocation Work?

Depending on market performance, fund managers allocate 65-80% of total assets into equities and 35-20% into debt. The allocation gets periodically rebalanced to minimize the risk and maximize the returns. 

Fund houses usually have an in-house allocation model which could be any one of the below. 

Counter-Cyclic Allocation Model

This model reduces investments in equity and increases debt allocation when the market is high. When the market is low, the investments tilt more towards equities.

Pro-Cyclic Allocation Model

This model follows the market trend and invests more in equity when the market is growing. Fund managers gradually reduce equity holdings when the market is falling.

Some funds use a combination of both methods depending on market conditions.

Top 4 Advantages of Investing in a Balanced Advantage Fund

1. Stable Returns

As BAFs follow a dynamic asset allocation model, the fund has debt allocation to fight equity market volatility. The portfolio will not crumble dramatically even when the equity market is at its lowest. The debt allocation within the fund balances your portfolio as you explore equity opportunities through BAF thereby generating stable returns. 

2. Low Risk

As BAFs are not completely allocated to equities, the risk factor is relatively lower. The exposure to equity and debt is healthy enough to tolerate market volatility and also generates decent returns. 

3. Dynamic Asset Allocation 

Fund managers use market conditions to your benefit as they dynamically allocate assets between debt and equity. Whenever equity instruments deliver superior returns, fund managers may shift some of them towards debt instruments to balance the risk.  

4. Tax Benefits

When calculating tax, BAFs fall under equity funds in India, allowing investors to gain tax benefits. The tax regime is similar to equity funds. Short Term Capital Gains (investments held for <12 months) will be taxed at 20%. Whereas Long Term Capital Gains above 1.25 lakhs (investment held for > 12 months ) will be taxed at 12.5%.  

3 Important Factors to consider when investing in Balanced Advantage Funds

1. Risk Factor

Although BAFs have lower risk, they are not completely risk-free. If the equity allocation is higher, the risk will also be higher due to equity market volatility.

2. Gain/Returns

The gain in BAFs won’t necessarily be as good as pure equity funds when the market boosts. However, the returns on BAF would be better than fixed-income funds. To gain higher returns, it’s best to keep your investment horizon for at least 3 years or more.

3. Investment Horizon

Again, you should only invest in BAFs if you can keep aside a horizon of 3 years or more. BAF may not be an ideal option for investors looking for short-term investments.

Tax Implications

As mentioned above, BAFs are taxed similarly to equity funds. If you redeem your investment before 12 months, it will fall under Short Term Capital Gain (STCG) tax which is flat 15% on capital gains.

And if you redeem your invested money after 12 months, it will fall under Long Term Capital Gain (LTCG) which is 10% on capital gain above INR 1 Lakh. It is recommended to hold these funds for a longer period of time to take advantage of tax benefits and most likely, higher returns. 

Who Should Invest in Balanced Advantage Funds?

BAF is suitable for investors who are seeking equity-like returns but with slightly lesser risk. BAF funds are less riskier than equity funds. Consider investing in BAF if you are comfortable with moderately aggressive investment or if your risk profile is balanced. BAF funds tend to deliver superior returns over a long period of time. We would recommend you keep a wider investment horizon, possibly 3-5+ years. If any one of the above factors matches your goals, you should definitely invest in BAFs. Call VNN Wealth Experts for more guidance.

Conclusion

Balanced Advantage Funds, aka Dynamic Asset Allocation Funds, are perfect to be a part of your long-term financial goals. You get the best of both equity and debt funds with low to moderate risk. Even though these funds are dynamic, fund managers will divide asset allocation as 65-80% into equity instruments and 35-20% into debt instruments. 80-20 allocation is more aggressive and risk-prone. 65-35 allocation can deliver decent returns with lower risk. 

As you know, the equity market is highly volatile. Even if you have a high-risk appetite, you may want to allocate a certain percentage to this category to bring stability to the portfolio during volatile times. To get equity-like returns with balanced risk via debt instruments, consider investing in BAF. The SIP method may further balance the risk instead of lump-sum. 

Read more about the advantages of SIP.

For any further guidance on investment planning and portfolio building, reach out to us anytime.